Are your clients setting and forgetting their mortgage?

23/9/2019

After an eventful winter season, spring looks set to bring more changes to the property and lending landscapes on both sides of the Tasman. Here’s our breakdown of the key things to know, and some food for thought.

Banks gear up for seasonal demand surge

According to KPMG’s latest Financial Institution Performance Survey, some New Zealand banks are locking in low interest rates through the bond market, which may help boost competition and pave the way for more record-low mortgage rates.

The timing is quite significant, as the RBNZ’s final decision on its plan to increase bank capital requirements will be released in November. The announcement is set to affect bank groups across the ditch, now caught between opposing regulatory requirements. Put simply, the Australian banking regulator wants Australian banks to halve the limit on their capital exposure to subsidiaries, whereas the RBNZ wants the New Zealand subsidiaries to increase the capital they hold.

As KPMG pointed out, the trend is “worrying, at least from a New Zealand perspective.” And it may impact mortgage rates in the coming months, as home loans currently account for more than half of overall New Zealand bank lending.

However, the outlook is all but certain. ANZ analysts, for example, expect three more cuts to the Official CashRate between now and May 2020, which would take the OCR to just 0.25% – possibly pushing mortgage rates down and house prices up.

The key to building equity: shorter home loans

Lending data shows that owner-occupiers (particularly first-home buyers) and investors are making a steady return to the housing market, both in Australia and New Zealand.

This isn’t a great surprise, with buyers now taking advantage of a less competitive market and low interest rates. The key thing is to make sure that property is a good long-term investment, which includes paying off the mortgage as fast as possible to reduce overall interest and build equity.

In a low-interest-rate environment, consumers can be tempted to take on more debt and for longer periods. According to debt-to-income figures released by the RBNZ last month, many New Zealand first-home buyers are taking out mortgages in excess of five times their before-tax income. Not only that, but new buyers also tend to take out home loans that they will be paying over 25-30 years.

The same trend concerns Australia, where the Bureau of Statistics found an increase in the proportion of mature homeowners (aged 55 to 64) carrying mortgage debt into retirement. Plus, the average mortgage debt-to-income has doubled between 1990 and 2015.

Here in New Zealand, our Mortgage Link advisers are committed to helping property buyers and owners across the country make well-informed decisions about their home loans. Mortgage debt can be intimidating, but when properly planned, it can also be a great wealth-building tool. So please make sure your clients get good advice before and after signing on the dotted line – talking to a mortgage expert can help them take out the right home loan today and then pay it off faster.